Does current government spending have a negative effect on the nation's economy, or does it contribute to the nation's output in some way?

During the last years, government spending in the US has had negative consequences over the economy. Indeed, a country can increase spending when it has a balanced Federal Budget or even a moderate deficit. However, in the case of the US, the Federal Budget deficit has been constantly increasing, increasing also in consequence the debt to GDP ratio.

Indeed, in 2019 the Federal Budget deficit reached 4.6%, when the average for the last two decades was around 2.9%. As a result, the debt to GDP ratio has surpassed the 100%.

Even when the increase of spending can foster economic growth in the US in the short-term (for example, GDP growth reached 2.9% in 2018), in the long-term the economy always turns back to its long-term rate of growth. Indeed, if we observe the performance of the US economy, economic growth has decreased in 2019 to around 2.3% and is expected to keep on decreasing to around 2.1% in 2020 (estimates made before the COVID-19 outbreak).

As a result, increasing spending in the US has had only a temporary effect over the rate of growth, and the economic costs of such a small increase in growth has been a growing deficit and a growing debt, which will reduce the long-term rate of growth in the future.